Almost every company has their Cash Cow. It’s usually the thing that made them “big.” For Google is search-based advertising. For Microsoft it’s Windows and Office. The problem is that these Cash Cows really end up stifling innovation.

Ron Burk in the attached link does a great job of looking at why companies fail because of these cash cows. What it comes down to is that the company is able to invest in unsustainable investments because it doesn’t affect shareholder value.

It’s also a lack of discipline. These large companies’ access to much larger resources (lobbying government, cash, lawyers, etc.) lets them fight in other ways than just building a better product. They’re also able to pump a ton of cash to float them for a really long time. Google has done with their checkout cart/paypal alternative where they’ve paid users to use it over other services. When a small decision might affect your entire payroll (such as at a startup), you’re going to evaluate things a lot more closely.

My personal view? Any company should strip down, and use smaller business units focused on building sustainable entrepreneurial businesses. These groups should also be encouraged to build new products or services that might overtake existing cash cows some day. Apple is doing it today with the iPhone (killing the iPod) and the iPad (killing the computer). If not, someone else is going to do it and kill you.

Johnson & Johnson has been doing it for decades. A former professor of mine summarized it in one of our courses on Strategic Agility:

Johnson & Johnson (J&J) has been very successful across a broad range of medical devices, from contact lenses to stents, as well as a range of consumables from wound treatments to injection needles and pharmaceuticals. Some of these areas do go thru a lot of change fast, with the development of new radical procedures, changes in regulation, genetics, etc. But, J&J’s opportunities are relatively separate and independent from one another. J&J can pursue each as an entrepreneurial business opportunity, in a distinct business unit. The overall logic of the company is based on ENTREPRENEURSHIP.  Many other success stories – such as HP in test instruments and medical instruments, or 3M in chemical applications – are based on a similar logic: entrepreneurial proliferation of distinct products and small business units.